Dow Chemical and DuPont agree to $130 billion merger

Last week, there were rumbles that two of the largest chemical companies in the United States were in “advanced talks” approaching the possibility of a merger. Now that rumbling has come to the surface: today Dow and DuPont announced that they have arrived at an all-stock “merger of equals” agreement valued at $130 billion.

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While it’s a major step in its own right, it is only the first step in a larger maneuver for the chemical giants. Once Dow and DuPont have successfully completed their merger, the new entity (titled DowDuPont) then plans to spin-off its categories to create three distinct, altogether new, independent and publicly-traded entities. These will include:

A pure-play agriculture company blending Dow and DuPont’s seed, biotech and agrichemical divisions;

A pure-play material science company, pairing DuPont’s Performance Materials division with Dow’s Performance Plastics, Performance Materials and Chemicals, Infrastructure Solutions and Consumer Solutions divisions, and;

A specialty products company for the company’s more unique offerings including DuPont’s Nutrition and Health, Industrial Biosciences, Safety & Protection and Electronics & Communications segments, plus Dow’s Electronic Materials segment.

 “This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders,” said Dow chairman and CEO Andrew N. Liveris in a press release from the company. “Over the last decade our entire industry has experienced tectonic shifts as an evolving world presented complex challenges and opportunities – requiring each company to exercise foresight, agility and focus on execution. This transaction is a major accelerator in Dow’s ongoing transformation, and through this we are creating significant value and three powerful new companies. This merger of equals significantly enhances the growth profile for both companies, while driving value for all of our shareholders and our customers.”

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“This is an extraordinary opportunity to deliver long-term, sustainable shareholder value through the combination of two highly complementary global leaders and the creation of three strong, focused, industry-leading businesses. Each of these businesses will be able to allocate capital more effectively, apply its powerful innovation more productively, and extend its value-added products and solutions to more customers worldwide,” added DuPont chairman and CEO Edward D. Breen. “For DuPont, this is a definitive leap forward on our path to higher growth and higher value. This merger of equals will create significant near-term value through substantial cost synergies and additional upside from growth synergies. Longer term, the three-way split we intend to pursue is expected to unlock even greater value for shareholders and customers and more opportunity for employees as each business will be a leader in attractive segments where global challenges are driving demand for these businesses’ distinctive offerings.”

After the merger, Liveris will take on the role of Executive Chairman of the combined entity while Breen will stay on board as CEO. Dow and DuPont expect that this merger will create as much as $3 billion in cost savings within the first 24 months, along with an extra $1 billion derived from growth achieved through making the most of the companies’ synergies. The merger is expected to close by the second half of 2016, with the separation into three entities commencing approximately 18-24 months down the line from that closing.